Saybrook Bank & Trust Fails Because Of Bad Loans

Another Bank Fails In State

Old Saybrook Lender 18th Shut Down By Regulators This Year

Saybrook Bank & Trust Co., one of the first in a string of Connecticut banks opened during the 1980s real estate boom, Friday became the 18th financial institution in the state to fail this year.

Regulators closed the Old Saybrook-based bank, which had four offices and $81.9 million in assets, around 3 p.m. after State Banking Commissioner Ralph M. Shulansky declared it insolvent. Officials attributed the failure to bad loans.

The Federal Deposit Insurance Corp. turned over most of the bank's assets and deposits to New Haven Savings Bank.

Saybrook Bank depositors did not lose any money and should not notice any interruption in service because they automatically became customers of the $1.8 billion New Haven Savings, regulators and bank officials said.

Saybrook's branches in Clinton, Chester and Old Saybrook will reopen today for business as usual while its office in New Haven will open Monday, Shulansky said. All will become New Haven Savings branches.

New Haven Savings plans to close the New Haven branch some time soon because it overlaps with existing operations, but the bank will continue to operate the other branches, spokesman David R. Rice said. Staffing levels are being examined, he said.

New Haven Savings acquired about $34.4 million of the failed bank's assets, including $24.7 million in loans, along with about $78.6 million in deposits under the transaction.

The acquisition was the second in two months for New Haven Savings, which Oct. 4 took over the failed Harbor National Bank of Branford.

Saybrook had been working for months to try to reverse the same problems that have claimed the state's other failed banks: real estate loans that soured with the economy.

Under regulatory orders first imposed last January, Saybrook had added heavily to its loan loss reserves, the pool designed to protect it against the effect of bad loans. It also had tried to trim expenses and raise capital.

But in the state's recession-strapped economy, the loan burden became too great. Saybrook at the end of the third quarter owed $3.8 million more than it owned, Shulansky said.

That gave Saybrook a capital-to-assets ratio, one common measure used to assess a bank's financial health, of a negative 4.92 percent, Shulansky said. Regulators require banks to maintain minimum ratios of 3 percent on the positive side.

But analysts said the bank's failure underscored the overabundance of banks that populate the state's banking landscape and have weakened the industry.

Saybrook was among the first of about three dozen so-called "startup banks" that were chartered in Connecticut during the 1980s real estate boom.

Its organizers had filed a charter application with the state banking department in 1983. Saybrook opened in 1984 even though a state banking department report said at the time its organizers had failed in their application "to justify the need for a new institution based on economic and convenience factors. "The fact that no new [banking] outlets have been established since 1974 [in Old Saybrook] is indicative that the banking industry may not perceive Old Saybrook as an overly attractive market," the report said.

But, the report said, "it should be left to the organizers to determine if they can successfully penetrate and compete in this market."

The report went on to recommended that the charter be approved because of benefits it said the bank would offer the local community, including banking convenience.

John D. Rooney Jr. of Legg Mason Wood Walker in New Haven, said, "Connecticut in the last seven years probably has had as many startups as any state in the union, much more than most of the East Coast states."

"A lot of them were just superfluous," he said.

Of the failure, Rooney said, "It's just a sad commentary on what is continuing to go on in this industry."

Customer reactions in Old Saybrook ranged from restrained to enraged.

Anna Ressler, who approached the branch's locked doors to find a depositors' notice taped to the glass, was among them.

"You can't get your money out? Ain't that something. Here you're coming on a Friday night to get your money and you can't. This is unreal," she said.

Ressler was not cheered to learn she could withdraw money Saturday morning. "That's not the point," she said. "Tonight's Friday night. People come out of work to get their money ... Oh, boy."

A few minutes later, after she had calmed down, Ressler remarked, "I haven't got that much in there so I'm not going to worry about it."

Customers knew the bank was troubled but didn't expect it to fail, several said.

"I deposited yesterday, no problem," said Jack Brady, who couldn't deposit a check Friday afternoon. "I used the cash machine late last night, no problem."

A woman who declined to give her name was trying to cash a check. "It's another one gone," she said, turning from the locked